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Why China must urbanize

Story highlights

A priority is to give full social benefits to migrants from rural areas

Turning farmers into full urban citizens will fuel economic growth

Wealth, ambition and willingness to experiment make China an architect's playground.

It's China's plan to guarantee its economic future: to relocate hundreds of millions people from rural areas to cities and to turn them from farmers into consumers.

And while China is building bigger and faster, Premier Li Keqiang says he wants the urbanization drive to focus more on people's needs and to be environmentally-friendly.

The government has pledged much-needed reforms of the "hukou", or household registration system, to allow new migrants to receive benefits in their new homes, as the current system ties them to their place of birth.

But can the government guarantee that those making the move will find jobs? And can China go beyond highways and skyscrapers to create neighborhoods that are livable and affordable?

Join CNN's Kristie Lu Stout in Shanghai for a discussion about the challenges of China's big move to city life.

Her guests this month: James McGregor, author, journalist, and chairman of consultancy APCO Worldwide; Peggy Liu, chairperson of JUCCCE, a Shanghai based non-profit dedicated to the greening of China; and Tang Min, senior economic adviser to the State Council, China's cabinet, and former chief economist of the Asian Development Bank.

Kristie Lu Stout:Jim McGregor, Peggy Liu and Tang Min, welcome to On China. Now we are in Shanghai, a mega-city with a population around 23 million. That's almost three times the size of New York City, but it wasn't always the case. Could you describe the rapid urbanization here in China, the last few decades leading up to this moment?

Tang Min: In 1949, when the People's Republic of China just established, the urbanization rate, that means using the urban population divide to the total population, was 11%. That's over 11% people living in the urban area. Now it's 52%. So there you can see the big change.

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Household registration reform in China

Tang Min: Huge change. 1% increase means 13 million people move from rural area to the urban area. So now every year around 13 million people move from rural to the urban.

Kristie Lu Stout: Jim I know you've been based here in China for decades. I mean, what have you seen in terms of the city-scapes changing here in China.

James McGregor: You know I remember taking some Chinese officials to Ellis Island years ago and on the walls are all these posters of the immigrants coming to America. Kind of these drawn-faced people with, with shabby clothes and bags, and you know, piles of bags and it looked like every train station in China. Because it's all the rural people coming in. You got 500 million people that have moved to the cities since 1980. And the lives they've been able to build, it's been incredible but the question is can they make it livable, because these cities are becoming some of the more unlivable cities in the world even though they're becoming quite developed at the same time.

Kristie Lu Stout: And China's new urbanization drive, this is a policy priority for the Chinese Premier Li Keqiang, could you give me the details: what is its ultimate goal?

Peggy Liu: Well Li Keqiang says that for every 1% of urbanization we have 7 trillion RMB increase in GDP annually. So of course it's monetary, right? There's a financial reason to do this. And so if you think about urbanization you need to build roads, you need to build shops, you need to build buildings, and all of that creates jobs. It creates employment.

Tang Min: In fact Li Keqiang's new urbanization is mainly addressing to those already in the city but is not fully integrated to the cities, not fully entitlement for urban social welfare.

Kristie Lu Stout: So, so under this urbanization drive, it's not about creating new cities in China, it's about making existing urban areas more accommodating...

Tang Min: number one...

Kristie Lu Stout: for rural residents.

Tang Min, economic adviser to China's State Council

Peggy Liu, chairperson of JUCCCE

James McGregor, Greater China chairman of APCO Worldwide

Tang Min: Number one task is doing that.

Kristie Lu Stout: Jim, I want to get your thoughts on this. I mean, why is this there a new urbanization drive? How is China going to do it?

James McGregor: will China do this, yes, because they have to. The current economic model of state planning, state banks, state industry and all these mega projects is running out of gas. If they gotta keep growth going, it's going to be consumers. And so this is all about creating consumers. Farmer are not consumers, people who move to cities are consumers. So that's all they gotta do. They gotta turn these people into consumers and the leadership of China knows their numbers. This government stays in power by making people's lives better. If they don't there's going to be trouble. Beijing has 20 million people and about 12 million of them are registered citizens the other 8 million are migrants. Their kids can't go to school. They can't get healthcare. And this has to now become a consumer economy so the great social justice story of China is in order to grow you have to turn these migrants in to full citizens and consumers. Now you know, the report the world bank did with the State Council here says that if you can take 13 million migrants and give them legal residency and make them consumers every year, you can drive 6% growth in China for 20 years.

Kristie Lu Stout: You're referring to the Hukou system here in China, right? Which is the household registration system which, up to now, basically prevents migrant workers, usually from the countryside, from accessing social services in the city that their working in.

Peggy Liu: I think there's a couple ways that I see that the government is trying to fix this. One is that slowly, starting from small cities to medium towns then to larger cities, they're loosening up the registration requirements. And in certain cities like Shanghai you can have a point system to actually buy in to the Hukou system.

James McGregor: there's also a lot of psychological and legal changes that have to happen because a lot of the farmers if they're offered a legal registration in the city, they don't want it, if they have to give up their farmland because that's the only asset they have. There was a survey a few years ago and only 23% of the migrants surveyed in like, cities across china said they wanted an urban residency, because they didn't want to have to give up their farmland.

Kristie Lu Stout: And now we're getting in to the thorny issue of property rights. What is going to happen to the land that the rural residents will leave behind as they move to the cities? I know the World Bank has been talking about creating some sort of "market mechanism" so that the farmers can somehow sell the land, that they don't own but that they have farmed. Is that going to happen in China?

Tang Min: Now still doing many piloting. Because this is very sensitive, very important issues, right? And so for those people already have a urban Hukou, and they may sell or if that market exist, but so far there're no market there yet. And for those that haven't got the urban citizenship yet, and if you sell suddenly they losing job. They have no place to go. So now the government very cautious about this. We have to slow, we have to piloting, before we find a way let's keep stand still. No change.

Kristie Lu Stout: But will you have a job? That's another big question because they could leave the countryside, go to the cities but will there be work for China's hundreds of millions of rural residents when they go to the cities?

Tang Min: Right. Already 260 million people already have job. Those people already move to the city. They have a job there. But they haven't getting the all social welfare yet. So for those people, job's no problem. It's a matter of if they've got full status of social welfare. For every year still who are 10 million people moving in, those people have to create job.

Kristie Lu Stout: Even if we're talking about tens of millions, and they cannot find work, slums will appear across Chinese cities. You will see a permanent underclass appear. How does China plan to deal with that?

Tang Min: So in that sense, why government very, very careful about the land reforms. Will not allow the farmers simply sold out their lands? Because China, unlike many other countries, do not have big urban slums partly because farmers have a piece of land there. They can survive there. If they can survive there, unless they get a much better life, why they move to the urban area, right? Unless they have a job. So current situation is, if they do not have a job, they will not move. They will remain in the rural area.

Kristie Lu Stout: But how can China achieve what, let's say other countries like Brazil, haven't been able to achieve? We see the slums, the favelas...

James McGregor: These guys are planners. They plan everything and sometimes the plans work, sometimes they don't, but the idea is you build cluster cities. You build spoke and hubs, you build smaller cities of a million or 2 million in a cluster surrounding these mega-cities and they're about an hour out. You have roads and you have trains and you have transport. In those cluster cities is where the people will be able to get Hukous, they'll be able to get housing registration and the idea is they'll be able to have affordable housing, they'll be able to be consumers, the service industry, manufacturing will be there. And they want to just draw the manufacturing out of the city but these people will still have access to the city.

James McGregor: I interviewed the Vice Mayor of Shanghai in 1990, sitting in a little brick building in Pudong where there was nothing but a bunch of factories etc. He had a model that looked like the Jetsons cartoon show of all these spires and all that. Now I look across this river - it's way beyond that model.

View of the Pudong financial district skyline from the historic Bund in Shanghai.

Kristie Lu Stout: And China has a plan, as you said, they're good planners, building out new schools, new hospitals, new urban areas, new entire cities. And all of that requires energy.

Peggy Liu: Yes.

Kristie Lu Stout: It requires resources. Does China have the resources?

Tang Min: Not necessarily. So that's why China has to import a lot of energy and even now, China become number one petroleum oil import countries. So they're opening globally. Also they're doing more inside energy and now they are facing, are trying to do the solar energy and the new energies. But this is definitely one of the major challenges, because more than 70% of energy in China is dependent on coal and coal is very polluting.

James McGregor: There's a long ways to go on energy efficiency here because it's so - this is the most wasteful development model and it all has to do with the land and speculation. The development models for cities here has been ring roads to hell, because it's really hard to turn rural land into urban land legally so what you do if you're a city, you build a ring road and you need to clear out all that land inside the ring road to be urban land. The farmers are paid only the agriculture value of their land and then the developers and the government have a party and make a lot of money. So if you do one ring road, why not do 6? Why does Beijing need 6 ring roads? Why would you want to drive around Beijing? You're supposed to go in and out of a city. So this high development model, it's very wasteful, it's automobiles, and then all the other cities copied Beijing. And it's also taken away the soul of the cities - the neighborhoods are gone where people grew up. Nobody recognizes anything.

Beijing's second ring road.

Peggy Liu: The green space is gone.

James McGregor: Green space is gone.

Kristie Lu Stout: But if this ring model approach is repeated again and again and again I can't help but think of the pollution, right? I mean already China has some of the most polluted cities in the world. If China builds out more cities, are we going to see even more polluted cities in terms of numbers?

Tang Min: Shanghai announced they have a plan wthin next 5 years, they reduce PM 2.5 by 20%.

Kristie Lu Stout: These are the tiny air particulates that can get deep into your lung...

Tang Min: that means reduce the air pollutions. And for 5 years they will prohibit all coal burning in Shanghai area.

James McGregor: Frankly, this has got to be a 10 or a 20 year fix because if you look at the pollution map of China. So it's all of central China and so matter who cleans up, this is a nationwide problem and it's going to take quite a long time to do it - I have to say though, the government is very focused on this because it's a political survival issue for the party. One thing about 30 years of high growth, as you say every 5 years it's a new China - it leads to incredible expectations.

Peggy Liu: And it's also a matter of national security, right, when it comes to energy? If we don't have energy to run our infrastructure, it is a national security issue. So, they're really, really focused on it.

Tang Min: I think, McKinsey have a study that shows that, in fact, if you put people concentrated within urban areas they save more energy and could be much more easier to addressing pollution than if you leave people all around.

Kristie Lu Stout: Is there an environmental opportunity here? If China's urban planners get it right, that they could create green cities across the country. Is there an opportunity here?

Peggy Liu: They could. And certainly a lot of the foreign, the international design firms, like Erip or AECom, are coming in and trying to do all sorts of very interesting models. So the question is can one city or one community even get it right so then we can scale it across China. China's whole way of innovating at city-scale is to sort of pilot at a community level and to see if something is workable, commercially viable and then it can use the Government Leadership Training Program and scale it across China.

James McGregor: Maybe they should go look at Taipei. I mean Taiwan. I lived in Taiwan in the 80s it was a garbage dump. The roads were completely jammed with cars, the motorcycles were on the sidewalks, it was completely polluted, the transport was horrible. Go to Taipei now - it's the nicest city in Asia, the rivers are clean, green space, bicycles, Prius taxis, lots of very good mass transit, because they focused on it. If Taipei can do it, and that's a Chinese entity, why can't the rest of the cities of China do it? One thing we're not talking about here - you can't sprawl because China is a very large country with a very small amount of arable land. This is a country of mountains and valleys where you can't grow things. And so, if China sprawls all its cities, it's not going to have enough farmland, and that is why this McKinsey report and others talk about having mega-cities where you have much more concentration of people because you can't eat up all the land with houses and golf courses and ring roads.

Kristie Lu Stout: Jim was mentioning Taipei as a success story - I mean, is there a success story? Successful, sensitive urban planning inside Mainland China?

Tang Min: Maybe some small city may be getting better but not a major one yet.

James McGregor: we've just gone through the Robber Baron Era of China where everybody made a lot of money and it was a lot of corruption, it was just money flooding around. So you actually end up making Ghost Cities, because there was a lot of money to go and there were developers and people had to put their money somewhere so they built all these cities that don't have people in them now. And maybe they will fill up eventually but it was just sprawling cities that go on forever and they're empty.

Kristie Lu Stout: Ghost cities, empty malls. What went wrong there?

Tang Min: Because of price and this is a real estate bubble. And, those in Beijing are priced so high, now it's almost...

Kristie Lu Stout: Was it really just the price or was it thoughtless construction, they didn't think it through?

Tang Min: Why they are not thinking through? Because there are big profits there. They thought they can sell and then they build that one and whatever they built, they think they can sell. But actually, not necessary, right?

James McGregor: Well the local governments made money by selling land because that was their only source of revenue and so they sell land, they do development. If you're richer you got nowhere to put your money, so you park it in a bunch of apartments and there's no real estate tax.

Kristie Lu Stout: let's talk about the structures themselves because here in Shanghai, you can't help but notice the Shanghai tower. And when it's completed it's going to be the tallest...

Kristie Lu Stout and Peggy Liu: The second tallest...

Kristie Lu Stout: ...building in the world. But it will have the fastest elevator. But why does China do this? I mean these superlative builds that have to be the biggest, the tallest, fastest elevator. Why?

Peggy Liu: Phallic symbols? Two words.

Kristie Lu Stout: It's an ego trip.

Peggy Liu: Showcases. If you think about mayors they need to show that they've done something in the 3 or 5 years that they've been there and what's the easiest way to do it? It's to bring in some Western-style French chateau villa or British mansions or some sort of skyscraper, right? Something that you can take a picture of.

Tang Min: Not only that, also land price increasing very fast. For those centers of the cities, you have to build high otherwise it's not worth it to build there.

Kristie Lu Stout: I can understand maximizing the build-able space, right, because you have limited area but still there seems to be some excessive economic muscle flexing going on here.

James McGregor: Well, you know, China is making up for a couple of bad centuries. You know, I mean this is a country that, you know, considered itself the leader in the world for a couple of thousand years and they had about a 150 bad years. And these are very intelligent, hardworking, educated people and they're just making up for lost time and part of that is 'let's show the world we're somebody'.

Kristie Lu Stout: Yep.

James McGregor: And so everything has to be grand, everything has to be big, and then it also goes back to the whole Soviet, you know, the greatness of Socialism, where you build big monstrosities. So you take those two things together, China doesn't do anything on small scale. Everything is big.

Kristie Lu Stout: There is that building shaped like...

Peggy Liu: CCTV.

A bird's eye view of the China Central Television building after a snowfall in Beijing.

Kristie Lu Stout: Well, CCTV, I'm actually a fan of Rem Kookhaas, but the coin-shaped building in Guangzhou? Or even the People's Daily headquarters that's being built? The rather risque design there? How much aesthetic consideration is going to be placed here as China creates new cities, new skylines.

Tang Min: This is all want to show, right, another point is this is not necessarily the government design. Many of them is the company - they design, they want to show it, right. And they expect a high income in the future, so they invest. If failed, they get into big trouble.

James McGregor: This is the architects" playground of the world.

Tang Min: Yes.

James McGregor: I mean architects from all over the world are coming here, because there's money, there's ambition, and you can design all these...

Peggy Liu: Willingness to experiment.

James McGregor: Yea, I mean you know, it's harder, in America it's harder to do a building because of all the things you have to go through. Kind of like Dubai and other places too but it's been all over China.

Kristie Lu Stout: And what is China's urbanization mean for the rest of the world? Because I can only imagine, if you are a foreign investor or a multinational company - you're thinking how can I get in on this. What are the opportunities?

James McGregor: Well, there is another billion people to meet the middle-class. The opportunities are going to be in healthcare because you also have an aging population and they're also going to be I think in the consumer goods that fits the price point of the new consumer. These rural people that will be moving to these satellite cities or moving into the cities who will be consumers but they're not going to start off with Prada, they're going to start out with low level goods. And I think companies that hit that price point and hit the quality point for those people are going to have quite a good run here.

Kristie Lu Stout: Let's say if you were a consultant for China's urban planners or for Beijing, what would you tell them is the top priority for them as they undergo this huge urbanization drive?

Tang Min: For me, definitely I will pay attention to the rural migrants. How to build social infrastructure for them which can fit them and also have to design the speed and the scale - how to do it gradually not all at one time to do everything. Not for the very rich, very high, very international or first class standard. Anything, hospitals, schools, buildings, hotels, everything has to be quite different...

Peggy Liu: Affordable.

Tang Min: ...compared with the past.

Peggy Liu: I would probably describe it in this way that China needs to build at human scale. So how do we actually include or create spaces where migrant workers can mingle with the existing 'elite' in urban centers? How can you let people have the access to space without having to afford to own the space themselves? We need to design in a completely different way and really focus on human beings versus just cars and versus just showcases.

James McGregor: Two things! One thing is to put on a real estate tax, which will make a lot of people unhappy that own real estate but who cares? You gotta take of these people coming in. Put on real estate tax, knock down prices, clear inventory. And the second thing is free the deposit rate in the bank so a Chinese person can put money in the bank and actually make money on it and then they're not going to be so focused on putting everything into real estate at the starting prices.

Kristie Lu Stout: Alright, we're going to have to leave it at. But Jim McGregor, Peggy Liu and Tang Min, thank you so much for joining me to talk about China's urbanization drive. Really appreciate it.